Introduction
As Malaysia prepares to adjust its base electricity tariff in the latter half of 2025, the move has sparked significant discussion, particularly among commercial and industrial consumers. This adjustment aims to address rising fuel costs and substantial investments in grid infrastructure to support the increasing electricity demand, particularly from the rapidly expanding data center industry and the push for renewable energy integration.
For Indonesia, which is experiencing a similar surge in electricity demand driven by digital transformation and the growth of data centers, Malaysia’s experience offers valuable insights into managing electricity pricing, balancing subsidies, and ensuring sustainable grid development.
Rationale Behind Malaysia’s Tariff Increase and Its Implications for Indonesia
The primary driver for Malaysia’s proposed electricity tariff hike is the rising cost of fuels, particularly coal and natural gas. Tenaga Nasional Bhd (TNB), Malaysia’s primary electricity provider, has proposed increasing the base electricity tariff to 45.62 sen/kWh (approximately Rp1,550/kWh) for the 2025-2027 period, up from 39.95 sen/kWh (Rp1,360/kWh) in the previous period. This represents a 14.2% increase, primarily to accommodate fuel price volatility and grid investments.
Indonesia’s state-owned electricity company, PLN (Perusahaan Listrik Negara), faces a similar challenge. While Indonesia maintains a heavily subsidized electricity structure, the government is under pressure to gradually reduce subsidies, particularly for industrial and commercial consumers. With Indonesia’s energy transition plans and the increased adoption of renewable energy, ensuring electricity price stability while maintaining grid reliability will be a key challenge.
Rising Electricity Demand from Data Centers
Both Malaysia and Indonesia are witnessing rapid growth in data centers, driven by increasing cloud adoption, AI processing, and digital transformation across industries.
In Malaysia, the demand from data centers is projected to reach 7.7 GW by 2030, accounting for nearly 38.37% of the country’s peak electricity demand. Similarly, Indonesia is expected to see a significant rise in electricity demand from data centers, with projections indicating a major increase as global and regional players such as Google, Microsoft, Amazon Web Services, and Alibaba Cloud expand their operations in Indonesia.
This growing demand raises concerns about electricity supply sustainability and infrastructure development. In response, Indonesia has been pushing for a greener energy mix, encouraging renewable energy-based data centers and investing in high-capacity grid upgrades. The upcoming RUPTL (Electricity Supply Business Plan) includes provisions for accommodating industrial energy needs while ensuring energy efficiency measures are in place.
Grid Investment and Renewable Energy Integration
TNB’s decision to increase capital expenditure to RM26.5 billion (Rp88 trillion) for grid and distribution improvements in Malaysia highlights the necessity of long-term investment to sustain increasing demand. Similarly, PLN is gearing up for massive grid modernization projects, focusing on smart grid deployment, interconnectivity improvements, and enhanced renewable energy integration to align with Indonesia’s net-zero carbon targets by 2060.
One key area of concern is the intermittency of solar power, which both Malaysia and Indonesia are experiencing with the increased adoption of rooftop solar installations and third-party grid access. Investments in grid flexibility solutions, battery storage, and AI-driven energy management systems will be critical to ensuring stability in Indonesia’s electricity supply.
Subsidy Rationalization and the Need for a Balanced Tariff Structure
A major concern for both countries is the sustainability of electricity subsidies. In Malaysia, the government allocates RM2.4 billion (Rp8 trillion) to maintain subsidized tariffs, but this approach is becoming financially unsustainable.
Indonesia faces a similar dilemma, as electricity subsidies remain a significant burden on the state budget. In 2023, PLN received over Rp72 trillion in government subsidies to keep electricity tariffs affordable. However, policymakers are under pressure to gradually reduce subsidies for commercial and industrial consumers while maintaining affordability for lower-income households.
The challenge is to strike a balance—ensuring that energy-intensive industries like data centers pay tariffs that reflect actual costs, while protecting essential users from excessive price hikes. Transparent tariff policies and phased adjustments could help create a more sustainable energy market in Indonesia.
Conclusion
Malaysia’s electricity tariff adjustment serves as an important case study for Indonesia as it navigates its own energy challenges. With the rising electricity demand from data centers, digital infrastructure expansion, and renewable energy integration, Indonesia must focus on long-term grid investment, sustainable pricing models, and enhanced regulatory frameworks to ensure a stable and reliable power supply.
As Indonesia continues its data center boom, proactive policies on electricity pricing, subsidy rationalization, and energy efficiency regulations will be crucial in shaping a competitive, sustainable, and future-ready power sector.
Source: Adapted from TheEdgeMalaysia.com
